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Source: Brian Sylvester of The Energy Report (7/5/12)
Malcolm Gissen and Marshall Berol, co-managers of the Encompass Fund, are bemused at the characterization of their fund as a "Ron Paul" portfolio, but they do not deny it. Their faith in hard assets-gold, silver, uranium, antimony, other strategic metals-and resource equities-oil and natural gas-remains firm. But investors, they say, need patience and a long-term perspective to prosper. Read more in this exclusive Energy Report interview.
The Energy Report: At the end of February, the Encompass Fund was up 20%, but by late April those gains had been reduced to 11%. Where does your performance stand now?
Marshall Berol: As of mid-June, the fund was down 6% year-to-date. We invest in a lot of resource companies and a number of the smaller firms have not done well recently. That is reflected in the fund's short-term performance. However, our objective is long-term capital appreciation.
The Encompass Fund was up 34% annualized over the three years ending March 31, 2012. We were in the top 1% of mutual funds in Morningstar's International Funds category and the subcategory of World Stock Funds.
TER: What could happen between now and the end of 2012 to boost your performance?
Malcolm Gissen: We are liquidating positions we do not feel will outperform over the next 6-18 months. We did the same thing at the end of 2008, and in 2009 the Encompass Fund produced a 137% return, largely because we stuck with the exceptional companies. We are doing the same thing now and are optimistic about the second half of the year.
MB: We are selling companies that are not as strong as they should be in terms of management, projects balance sheets and the ability to raise capital.
In the energy or resource sectors, access to capital is critical. Companies generally need to keep drilling and expanding production. Companies without sufficient current cash are struggling and should to be reduced or eliminated from a portfolio, leading to better performance when the markets turn, as we believe they will for energy and resource stocks.
TER: Investors withdrew capital from many funds over the last year. Are you experiencing that?
MG: We have had some withdrawals, but our investor group has confidence in us and shares our long-term perspective. Because our fund is cautious and keeps a reasonable amount of cash, we have not had to sell any securities we did not want to sell in order to produce cash to meet liquidations, even in 2009, when we produced the 137% return.
TER: Some pundits have called the Encompass Fund a "Ron Paul" portfolio. Are you comfortable with that description?
MB: I'm not sure what that means. If that is a reference to the fact that we have a decent portion of the portfolio in gold and silver, then yes, though Encompass has a far lower allocation to precious metals than Dr. Paul. We believe in gold and silver long-term. We also believe in resource companies because of a supply-demand imbalance that is likely to get worse. But the fund's portfolio has a far wider variety of resource companies and exposure to other sectors, which we understand the Paul Portfolio does not.
MG: And like Ron Paul, we are opposed to a lot of regulation. Marshall and I want to see our nation address overregulation of the resource sector, to make it easier and less time-consuming for companies to get into production.
I believe you can have laws that protect the environment and make it easier for resource companies to get into production and provide jobs and economic development. Intelligent regulation makes sense, but regulations affecting the resource sector in the U.S. have hampered the industry and cost millions of jobs and billions of dollars.
TER: One of your core holdings is U.S. Antimony Corp. (UAMY:OTCBB), which has seen remarkable gains. Does its performance embolden your belief that hard assets and resource stocks remain the right place to be?
MG: Yes. We bought U.S. Antimony in March 2011 at $0.40. Fifteen months later, its shares are trading over $4. It has production and mills to process the rock in Mexico. It has smelters in Mexico and Montana. We think the company is in the right place at the right time and has a very bright future ahead.
MB: We believed hard assets and resources were the place to be years before we invested in United States Antimony. We still feel that, for fundamental reasons beyond stock performance. Whether it is antimony, oil or natural gas, gold, silver or copper, the longer-term price trends for commodities are up because of supply and demand.